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Is Pollution Value-Maximizing? The DuPont Case

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  • Roy Shapira
  • Luigi Zingales

Abstract

DuPont, one of the most respectable U.S. companies, caused environmental damage that ended up costing the company around a billion dollars. By using internal company documents disclosed in trials we rule out the possibilities that this bad outcome was due to ignorance, an unexpected realization, or a problem of bad governance. The documents rather suggest that the polluting was a rational decision: under reasonable probabilities of detection, polluting was ex-ante optimal from the company’s perspective, even if the cost of preventing pollution was lower than the cost of the health damages produced. We then examine why different mechanisms of control – legal liability, regulation, and reputation – all failed to deter a behavior that was inefficient from a social point of view. One common reason for the failures of deterrence mechanisms is that the company controls most of the information and its release. We then sketch potential ways to mitigate this problem.

Suggested Citation

  • Roy Shapira & Luigi Zingales, 2017. "Is Pollution Value-Maximizing? The DuPont Case," NBER Working Papers 23866, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:23866
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    3. Ron Boschma & Rune Fitjar & Elisa Giuliani & Simona Iammarino, 2024. "Unseen costs: the inequities of the geography of innovation," Papers in Evolutionary Economic Geography (PEEG) 2428, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Sep 2024.
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    6. Itzhak Ben-David & Stefanie Kleimeier & Michael Viehs, 2018. "Exporting Pollution: Where Do Multinational Firms Emit CO₂?," NBER Working Papers 25063, National Bureau of Economic Research, Inc.
    7. Jürgen Bott & Udo Milkau, 2018. "Risk Culture and the Role Model of the Honorable Merchant," JRFM, MDPI, vol. 11(3), pages 1-11, July.
    8. Hasan, Iftekhar & Noth, Felix & Tonzer, Lena, 2019. "Thou shalt not bear false witness against your customers: Cultural norms and the Volkswagen scandal," IWH Discussion Papers 21/2019, Halle Institute for Economic Research (IWH).
    9. Amore, Mario Daniele & Bennedsen, Morten & Larsen, Birthe & Rosenbaum, Philip, 2019. "CEO education and corporate environmental footprint," Journal of Environmental Economics and Management, Elsevier, vol. 94(C), pages 254-273.
    10. Choi, Changhwan & Chung, Chune Young, 2024. "The effect of shale gas booms on environmental CSR activity," International Review of Financial Analysis, Elsevier, vol. 95(PB).
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    12. Hasan, Iftekhar & Noth, Felix & Tonzer, Lena, 2023. "Cultural norms and corporate fraud: Evidence from the Volkswagen scandal," Journal of Corporate Finance, Elsevier, vol. 82(C).
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    14. Klerman, Daniel & de Figueiredo, Miguel F.P., 2021. "Reputational economies of scale," International Review of Law and Economics, Elsevier, vol. 65(C).
    15. Goetz, Martin, 2019. "Financing conditions and toxic emissions," SAFE Working Paper Series 254, Leibniz Institute for Financial Research SAFE.
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    More about this item

    JEL classification:

    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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